Despite the recent changes made at the CEO level, Whole Foods Markets’ 365 concept is moving forward with an eye towards growth. In this edition of PLMALive! Roy White offers his analysis.
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365 Is Beginning to Add Up
Whole Foods Market’s grand plan to return to financial health may now be starting to fall in place. Store brands are front and center in this plan, as is the new store format – 365 by Whole Foods Market. It takes its name and logo directly from the Austin, Texas chain’s private label program. Not only are changes being made in operations and merchandising, but Whole Foods may well considerably alter its face to consumers with the introduction of these new stores.
For one thing, they are designed for growth. At an average of 26,000 sq. ft. they’re a good 20,000 sq. ft. smaller than the legacy Whole Foods. They are standardized units with a set layout and minimalist design. Ceilings are open. Interior unpainted. Capital expenditure is one half that of a traditional unit. As a result, they can be opened more quickly in more places, especially urban areas, and are thus positioned as an integral part of the long term plan to build the Whole Foods organization from its current 455 units to over 1,200. By the end of fiscal 2016, there will be three 365s in operation, and of the 106 leases currently signed 20, or around 19%, are 365s. Ten openings are apparently planned for 2017. 25% of the planned 365s are in new markets, compared to 16% for the traditional format.
The 365s powerfully address price. Not only do the new units’ logo reflect Whole Foods store brand, but the mix itself will be strongly oriented towards the 365 label. Close to half of non-perishable SKUs will be store brand, and the 365 line has been described as the merchandising anchor. If you go online to the 365 site, the emphasis on store brands is obvious.
Technology is an integral part of the design. Every price tag is digital and can be updated instantaneously and completely accurately. Digital signage promotes sales and in-store programs. There are ordering kiosks for take-out food. The My 365 Rewards program is completely digital.
From an operational point of view, 365s will be labor-light. At around 100, the number of associates is less than half of the traditional format. Customer service will be less robust, with the individual service counters gone. An app takes up the slack. Meats and cheeses are pre-packaged. There is no on-site bakery.
Nonetheless, 365s are appealing. Selection has been cut to 7,000 items from the 20,000 of the legacy units. The chain is using a grab-and-go concept to speed customers’ shopping experience. Appeal is being reinforced with a 365 Friends program, which brings in an outside operator for the restaurant.
The store-brand based 365 units are easier to open, operate less expensively, feature a competitive price structure, and maintain the healthy eating appeal of its traditional units with a rigorously selected mix. They may lead the chain back to fiscal health and, if they do, store brands will have been a vital component in achieving this.